Article | Intelligent Investment

Five key considerations before investing in social and affordable housing

With Australia in the midst of a rental and housing crisis, CBRE is helping investors and developers understand this sector’s true potential.

December 11, 2023


If there was ever any doubt about the potential of social and affordable housing, one simply needs to look at the unique methods being created today to measure its potential impact.  

Researchers from Swinburne University of Technology recently developed a tool for the Community Housing Industry Association to calculate the social, economic and environmental benefits of social and affordable housing. According to the SIGMAH calculator (Social Infrastructure and Green Measures for Affordable Housing), the 40,000 social and affordable homes to be supported under the Commonwealth’s National Housing Accord and Housing Australia Future Fund over the next five years will create an additional $4.4 billion worth of wider benefit over the next four decades. 

It’s an astonishing forecast and one that’s worth exploring at a time when Australia is experiencing a rental crisis with a growing number of people falling into rental stress and homelessness. Meanwhile on the opportunity front, social and affordable housing is an often-misunderstood market sector which offers considerable growth potential for investors through the delivery of stable, long-term revenues.  

To help investors and developers understand this potential, CBRE’s Talking Property podcast enlisted the expertise of Wendy Hayhurst, CEO of the Community Housing Industry Association (CHIA), Nicholas Proud, CEO of PowerHousing Australia, Gavin Salt, Residential Lead at i2C Architects and Steph Harper, Valuation & Advisory Services Director for CBRE's Living Sectors business.  

What is social and affordable housing 

Social housing refers to the homes for people who are unable to afford private rental market rents. Occupants are usually on very low incomes and the households are likely to be receiving some form of government benefit. Affordable housing is slightly broader in its target market of low to moderate income earners. By definition, it refers to housing that does not represent market price or rent made available to a particular lower income earner. 

Benefits of the sector 

There are seven major components that make up the benefits of social and affordable housing:  

  1. National growth goals 
  2. Promote societal benefits 
  3. Contribution to workforce 
  4. Promotes community integration 
  5. Increases economic stability 
  6. Reduces homelessness and promotes equity 
  7. Supports environmental goals 

Social and affordable housing can deliver a host of benefits but the most significant one involves breaking Australia’s cycle of homelessness while contributing to society and the economy.   

“If we think about who's being housed, they're people who are formally homeless quite often, or they're in rental stress,” says Hayhurst.   

“If we provide them with stable secure accommodation, it usually makes it far easier for them to thrive. They'll be in a better position to get a job and they'll more likely make an impact on the rest of the economy by paying higher taxes.” 

More homeless people can also mean greater pressure on health services and a higher chance of those people experiencing the criminal justice system. Building social and affordable homes that are generally energy efficient can also deliver important benefits.  

“People are often trying to save on higher bills, so when you add all of that up, the community benefits can be up to $4.4 billion over 40 years. 

"Lower income people tend to spend the extra money that they have in their pocket. They don't have the scope to save. If we invest in this sector, we have to balance the cost of doing so with the benefits that come with it. If we don't treat it like infrastructure, it becomes too hard for governments.” 

The local sector’s potential 

As part of PowerHousing Australia, Proud facilitates a national network of 37 growth and tier one regulated community housing providers who develop and manage affordable housing across Australia. 

He highlights that the country’s immediate challenge revolves around playing catch up on the idea of social and affordable housing for the growing population.  

In places such as London, social and affordable housing is a concept that has been normalised. 

“Developments like the Battersea Power Station, an iconic 1930s power station, is now a vibrant hub that was a desolate industrial wasteland seven years ago. It now has social and affordable housing as a component of the delivery,” he explains.  

 “What you can see in those parts of the world is an approach that's a little bit more advanced and mature, and the financing that sits behind those types of deals is significant. But what it does say is it can be done. And what needs to be seen here is this next stage of our Federal Government, State Government and local government collaboratives. 

“We're getting more mature in our discussion, and I think it couldn't have come soon enough.” 

Hayhurst adds that without government investment, social housing is impossible. 

“The gap between what people pay in rent and what it costs to build and then maintain it, it's just unachievable.”  

What investors need to know 

When it comes to investors in the sector, Harper explains that there’s no one-size-fits-all.  

“With a variety of different models that are floating around for social and affordable housing, there is likely something that will suit different investors or developers.  

There is an entire spectrum of delivery models, anything from a pure infrastructure play all the way to something with residential market exposure, each with a different risk or reward profile. 

These models focus on different partnerships which come in the form of requirements such as:

  • Stakeholders' role(s) 
  • Type of built form outcome 
  • Restrictive or intended use 
  • Government grants or subsidies 
  • Time frames and investment terms 
  • Exit strategies 
  • Targeted cohorts 

All of these combining factors can form a delivery model and they have different risks attached to them. As for what returns investors can expect, “Appetite for those different models is really going to depend on the investor,” says Harper. 

The current challenge for some is the inability to unpack these models, particularly from consultants.  

Understanding good design in social and affordable housing  

When looking at design, Salt says that good affordable housing is the type of housing that takes care of people’s comfort and health.  

“Addressing energy efficiency solves these problems,” explains Salt. Specifically, he highlights the two key areas of energy use and energy poverty.  

“Energy poverty is a problem that a lot of social housing residents can have. Of our clients that are undertaking a review of their portfolio, we're seeing them retrofit or redesign those properties in an energy sensitive manner.  

“What that allows you to do is design for longevity. Investors want robustness and longevity inherent in the design of their assets. We are going through a climate crisis so we need to figure out what that looks like and what the world will be like in 10 to 30 years.

"If we can design and invest in robust energy efficient housing, we are going to future proof the portfolio of social and affordable housing.” 

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